An Explosive Market: Compact Equipment

Oct. 6, 2006
The compact equipment market is one of the construction equipment industry’s hottest. Eleven compact equipment experts — representing nine manufacturers and one industry publication — recently gave RER their thoughts on market growth, technology trends and high fuel prices

The compact equipment market is one of the construction equipment industry’s hottest. Eleven compact equipment experts — representing nine manufacturers and one industry publication — recently gave RER their thoughts on market growth, technology trends and high fuel prices. Over the next three weeks we will include their market insights in RER Reports. The panel includes:

  • Randy Vargason, Mustang general manager
  • Doug Dahlgren, Allmand Bros. product manager
  • Kent Pellegrini, Caterpillar Inc., skid-steer loader/multi-terrain loader industry manager
  • Greg Lawrence, The Toro Company marketing product manager, Dingo compact utility loaders
  • Jim Hughes and Dave Wolf, Case Construction Equipment brand marketing managers
  • Bill Gearhart, Yanmar Construction Equipment assistant marketing and product manager
  • Gregg Zupancic, John Deere Worldwide Construction & Forestry product marketing manager, skid steers and compact track loaders
  • Mike Ross, Takeuchi Mfg. national product and training manager
  • Lowell Stout, Terex senior product manager
  • Keith Gribbins, Compact Equipment magazine managing editor
What is the definition of compact equipment? What are the requirements to be categorized as compact?

Randy Vargason: Rather than focusing on dimensions to categorize equipment, we focus on utility. We define compact equipment as units designed to work on residential or small commercial sites. Ideal for the small to mid-sized contractor, these units are typically transportable via a pickup truck or small trailer. Compact equipment’s value comes from its versatility and ability to accomplish several tasks that may have only been possible with large, dedicated machines in the past.

Doug Dahlgren: I don’t generally think of compact equipment in terms of a certain size or specification. While some manufacturers may argue that it’s anything under 50 hp, I think it depends more on the applications for which the equipment is suited. I think the key features of compact equipment include its lighter weight and ease of operation and transportation, which makes this equipment ideal for the rental market.

Kent Pellegrini: Classifications by operating load are typical in the light construction market as many customers relate the operating load to their specific type of work. Size and width requirements are another that enables the contractor to access work areas larger equipment cannot. Cost factor is a driver when considering compact construction equipment, as this is generally an affordable size class. The size class allows for a company to grow into larger machines later if their budget cannot justify it at the present time.

Greg Lawrence: The term compact equipment is used for a broad range of products that span several different industries. In terms of compact utility loaders, we define “compact” as any unit that has an engine of 25 hp or less and can fit in tight areas. Compact utility loaders, mini-excavators and small track loaders all fall under that category.

Jim Hughes/Dave Wolf: There is no industry standard that determines what requirements categorize equipment as compact or heavy. Case categorizes skid-steer loaders, loader backhoes, mini-excavators, compact track loaders and compact wheel loaders as compact equipment. While there aren’t specific requirements necessary for equipment to be categorized as compact equipment, it encompasses equipment designed specifically to get into tight quarters and is easily moved from jobsite to jobsite.

Gregg Zupancic: John Deere categorizes the compact equipment business as products that fit into tight places, get the job done quickly and cost effectively, and that can be loaded onto a truck and trailer to the next job without a CDL license.

Mike Ross: We consider machines with operating weights less than 8 tons and equipped with engines in the zero to 100-hp range to be compact equipment.

Lowell Stout: Compact equipment can be defined as machines that are smaller in size and have less performance than the conventional, traditional products of the same type. For example, wheel loaders 2 cubic yards and up in size have been the traditional products for many years. So you could conclude that any machine smaller than 2 cubic yards is a compact wheel loader. However, some people prefer to classify any wheel loader that has less than 80 hp as compact. The construction industry is still sorting itself out when it comes to compact terminology and how it is applied to various types of products. And now we have the term “mini” to define within “compact.”

Keith Gribbins: Compact equipment can be categorized in many different ways. Some machines are just categorized as compact — skid steers and compact utility loaders for instance. Every size of those machines are called compact. But other machines like backhoe loaders, excavators and tractors have big and small sizes.

1. Compact tractors are categorized as tractors under 40 PTO hp. 20 PTO hp and under are considered sub-compact.
2. Excavators that are 6 metric tons and below are mini or compact excavators.
3. Backhoe loaders with a dig depth of 14 feet or below are considered compact.
4. Telehandlers with a two-stage boom that reaches no higher than 20 to 25 feet are considered compact. Telescopic tool carriers are also considered compact.

When we started the magazine, we defined compact equipment as any machine that an operator could haul behind a truck on a trailer without needing a CDL. But typically, every machine is categorized by manufacturers and Association of Equipment Manufacturers as compact, midi or full size.

What does the overall market look like?

Vargason: The compact market remains robust. Track loaders are extremely popular, and sales continue to increase year over year. Skid steers will always be a market favorite, and they continue to experience healthy sales. There has been some discussion as to whether the skid steer can bear the weight of the track loader. It has proven it can. While sales are not increasing at the same rate they had in the years prior to the rise in popularity of the track loader, they continue to be strong.

Compact excavators and telehandlers are showing excellent growth over last year, as the market learns just how much value these versatile and powerful — yet compact — units can add to a fleet.

Dahlgren: I think the market is very strong right now and should continue to grow. While some people look at these machines as simply “downsized” versions of full-size machines, the fact is they’re serious pieces of equipment that are appropriate for a wide variety of smaller jobs. For example, it wouldn’t make any sense to use a full-size excavator to put a hot tub in a backyard, but a piece of compact equipment is just right for this kind of project. There’s a large market for these machines due to the variety of applications they can be used in, and I don’t see that changing.

Lawrence: The compact equipment industry has experienced steady, double-digit growth over the last several years. As jobsites become tighter and tighter (properties are getting smaller), many contractors are turning to smaller, more versatile equipment to do the jobs that were traditionally done by larger, application-specific machines. We hope this trend will continue in the near-term future.

Hughes/Wolf: The overall compact equipment market is growing rapidly. All of the product lines are realizing growth. Compact track loaders, mini-excavators and compact wheel loaders are growing at a phenomenal rate.

Gearhart: The compact equipment market is very good right now and looks like unit volumes should increase in the next few years.

Zupancic: John Deere entered into the compact construction equipment business with a focused business unit, Commercial Worksite Products, in 1997 — a four-model introduction of Deere designed and manufactured skid steers. In the past seven years the CWP product line has evolved and grown into a 13-tractor lineup that includes more than 100 Worksite Pro Attachments.

Ross: The compact market remains very strong. Contractors continue to discover the advantages of using smaller, more maneuverable equipment on jobsites. Our compact excavator and rubber track loader sales continue to climb despite several new competitors in the market. More than anything else, contractors seek out durable, productive, and reliable equipment that can be used on multiple jobs. I think it’s very telling to see how many big equipment contractors now have several compact machines in their fleet.

Stout: The compact equipment market is strong with some segments stronger than others. The mini/compact excavator market continues to grow and get stronger while some other segments are not seeing the same buoyancy.

Gribbins: From our studies, the overall compact equipment market is the biggest growth segment of the construction, rental and landscape industries. Unit sales are astounding and there’s growth in nearly every machine category.

Skid steer sales numbers: 2003 — 57,000; 2004 — 65,500; and 2005 — 66,500.
Compact excavator numbers: 2003 — 14,000; 2004 — 17,000-18,000; and 2005 — 20,000 plus.
Compact track loader numbers: 2000 — 3,300; 2004 —16,000; 2005 — 20,000.

Interest in small machinery can be tracked by sales numbers as well as interest from manufacturers. Caterpillar, Case, New Holland, Gehl, JCB, Mustang, John Deere, Volvo, Ditch Witch, Vermeer and others have greatly expanded their product lines in the compact equipment realm. Gehl just discontinued its agriculture implement line to solely focus on compact equipment. JCB recently created an entire division dedicated to small machines. After the horizontal directional drilling market fell out in 2001, Vermeer and Ditch Witch turned to compact equipment (compact utility loaders and mini-excavators) to reinvigorate their equipment lineups.

Another growing factor for small machinery is the private user market — large estate owners, sundowners or hobby farmers. These are baby boomers with disposable income who have a piece of property and need to invest in or rent a small piece of equipment to tackle their daily to-do list. They dig drainage and fenceposts, cut grass, remove snow and grade gravel driveways. In 2005, more than 135,000 compact tractors were sold in North America, and 60 to 70 percent of those sales were to private users.

What effect did the 2005 hurricane season have on the market? How are you preparing for the 2006 hurricane season?

Vargason: Demand for compact equipment was intense during the height of last year’s cleanup efforts in the affected portions of the United States, and units continue to move toward the southern portion of the country. In terms of preparation for the upcoming hurricane season, we have outlined procedures that will enable us to act as soon as warnings of a hurricane or large storm present themselves. Our region sales managers and dealers have done an excellent job brainstorming how we will reach one another in an emergency, how we will place advanced orders and how we will support our affected dealerships and their customers.

Dahlgren: By the time the hurricane season really hit, we were already in the middle of servicing commitments to our existing customers and didn’t have a lot of extra equipment to divert to the hard-hit areas. However, I know some of our customers moved their existing equipment to those locations affected by the hurricanes.

Lawrence: As a result of last year’s hurricanes, many machines were redeployed in different ways — for cleanup and demolition tasks rather than for landscaping or building water features. That’s because these machines are good at getting on beaches and in basements where large equipment can’t go. After the storms, landscapers saw their lawn maintenance businesses change gears, shifting to debris removal, fencing repair, and recovery efforts. We are aware of some landscapers who say they are doing four times the amount of business they had been doing and are booked months out with work. They are serving the same customers — just with different needs. The true (total) impact on equipment sales has not been felt because permanent reconstruction work has just begun in some areas.

Hughes/Wolf: The 2005 hurricane season certainly impacted sales for compact equipment because all of those areas hit by the hurricanes needed to be cleaned up and rebuilt. Construction equipment in general played a large role in the cleanup effort. In terms of the 2006 hurricane season, no one can really predict what will happen. However, Case was quick and able to respond last year and will assist whenever disaster relief is required.

Gearhart: When we at Yanmar learned of the severity of the damage resulting from hurricane Katrina, we donated compact wheel loaders to the Louisiana National Guard to help them with their efforts to provide emergency relief to the residents after the storm. Our compact wheel loaders were a welcomed addition because our units are designed to operate in tight urban areas where larger equipment can’t operate. The general market for compact equipment in the storm areas is up as a result of private reconstruction jobs. We have not taken steps to specifically address hurricane situations but we are preparing for an overall growing market segment.

Zupancic: The 2005 hurricane season drove an initial surge in industry sales. However, many folks on the Gulf Coast were not able to purchase their equipment to help move past the devastation of the 2005 season. An effort at the John Deere Dubuque Works, in Dubuque, Iowa, exemplifies the commitment employees, dealers, suppliers and John Deere made to help with Hurricane Katrina relief efforts. More than 250 members of the United Auto Workers at the Dubuque Works volunteered their personal time to build backhoe loaders and skid-steer loaders needed by organizations working on relief and restoration activities in the region affected by Hurricane Katrina.

Ross: Sales of compact equipment were up in the Southeast for the fourth quarter of 2005 and first quarter of 2006. Some areas will continue to need additional equipment for years to come.

Stout: It obviously increased the sales and rentals of both compact and heavy products. Last year’s hurricanes produced a heavy demand for some attachments not usually seen in a more normal sales year. We believe that attachment manufacturers will be better prepared to produce the special attachments like grapple buckets and thumbs in 2006 than they were in 2005. Plus, some of these products are being carried over in rental fleets.